http://www.nytimes.com/2008/09/10/bu...10grocery.html


September 10, 2008

Miles of Aisles for Milk? Not Here

By ANDREW MARTIN


"HARMAR TOWNSHIP, Pa. - Like cars and homes, grocery stores are beginning to
shrink.

After years of building bigger stores - many larger than a football field
and carrying 60,000 items - retailers are experimenting with radically
smaller grocery stores that emphasize prepared meals, fresh produce and
grab-and-go drinks.

The idea is to lure time-starved shoppers who want to pick up a few items or
a fast meal without wandering long grocery aisles or paying restaurant
prices.

Safeway has opened a smaller-format store in Southern California, and
Jewel-Osco is building one in Chicago. Wal-Mart plans to open four
"Marketside" stores in the Phoenix area this fall, and Whole Foods Market is
considering opening smaller stores.

And here in the northern suburbs of Pittsburgh, the grocery chain Giant
Eagle opened a Giant Eagle Express last year that is about one-sixth the
size of its regular stores. It has gas pumps, wireless Internet and
flat-screen televisions in a small cafe, a drive-through pharmacy and an
expansive delicatessen that offers sushi, rotisserie chickens and
ready-to-heat dinners.

"It's perfect," said Dusty McDonald, a 29-year-old bank teller who was
buying breakfast sandwiches recently for her co-workers at the Giant Eagle
Express. "It's on my way to work. It only takes me 10 minutes to get in and
out."

The opening of smaller stores upends a long-running trend in the grocery
business: building ever-larger stores in the belief that consumers want
choice above all. While the largest traditional grocery stores tend to be
about 85,000 square feet, some cavernous warehouse-style stores and
supercenters are two or three times that size.

Statistics compiled by the Food Marketing Institute show that the average
size of a grocery store dipped slightly in 2007 - to a median of 47,500
square feet - after 20 years of steady growth.

The biggest push in such stores is coming from the British retailer Tesco,
which made a splashy entry into the United States last fall, opening a
10,000-square-foot Fresh & Easy Neighborhood Market in Las Vegas.

Since then, Tesco has opened 72 stores in Nevada, Arizona and Southern
California.

Gary Smith, founder of Encore Associates, which advises the food and
consumer goods industry, said the smaller stores opened by other chains were
"a loud message to Tesco that they are not going to be able to walk in and
grab market share."

Mr. Smith added: "It's also a way for them to do some testing for if and
when Tesco comes to their market. They are better able to counter it."

Besides Tesco, grocery retailers face competition on multiple fronts. Chains
ranging from Target to CVS to dollar stores are selling more groceries, and
some small convenience stores - long the domain of warmed-over hot dogs and
microwave burritos - are offering higher-quality food.

The big grocery chains are not thinking about closing their larger stores,
which have been a success. But they hope to capture new business with the
smaller stores, appealing to consumers on days when they do not have time
for a long shopping trip.

"The average person goes shopping for 22 minutes," said Phil Lempert, who
edits Supermarketguru.com, a Web site that tracks retail trends. "You can't
see 30,000 or 40,000 products. We are moving into an era when people want
less assortment."

Jim Hertel, managing partner at the firm Willard Bishop, which advises
supermarkets, added, "If you've got 50 feet of ketchup and what you want is
Hunt's 64-ounce and you can't find it, people get overwhelmed."

Of course, small grocery stores have been around forever, and some old-time
neighborhood markets still exist. Meanwhile, a handful of specialty
retailers have proved that shoppers will flock to smaller stores if they are
offered a novel experience.

Trader Joe's, for one, has thrived by offering a limited selection of
high-quality, relatively inexpensive products in quirky stores that are
15,000 square feet or less. Aldi and Save-A-Lot are drawing customers in
droves by selling a limited assortment of aggressively discounted products.

What distinguishes the new stores is that they are being built by more
traditional retailers, and they emphasize fresh, prepared foods for busy
consumers.

Kevin Srigley, a senior vice president at Giant Eagle, whose stores are
spread across western Pennsylvania, Ohio, West Virginia and Maryland, said
the express store seeks to provide customers with a "smart stop to save you
time on the things you need most," in addition to offering fresh foods.

He said the idea for the express store came from Tesco stores in Europe -
his company has a longstanding relationship with the British retailer - and
from research that detailed the varying needs of consumers.

Mr. Srigley said he was pleased with many aspects of the company's first
Giant Eagle Express store, in Harmar Township, like customer reaction to the
prepared foods and baked goods. But since the store was meant as a
laboratory, he said, Giant Eagle may tweak the concept before opening more
of them.

Will customers come to the smaller stores? Analysts said that Tesco's
initial sales fell short of expectations and the company stopped opening new
ones for several months this year to assess customer feedback and make
adjustments.

Still, a Tesco spokesman, Brendan Wonnacott, said that the company was
pleased with the stores' results and that the number of customers and sales
were increasing.

"This is a format we are excited about, that our customers are excited
about," he said.

The Fresh & Easy Neighborhood Market in Laguna Hills, Calif., offers row
after row of bagged produce and its own line of prepared meals that are
either chilled or frozen. Customers shopping there recently said they liked
the store, though several said they wished that Tesco carried more British
specialties.

"They have the best frozen food I've ever tasted," said Nathan Cromeenes,
35, who lives nearby and longed for English shortbread.

He said he liked not having to choose among 50 varieties of spaghetti sauce.
"They just have one, and it's really good."

Dana Gurr, a 49-year-old saleswoman in Laguna Hills, was less enthusiastic.
She said the store was sterile and the vegetables went bad quickly. "It's
not that fresh, but it is easy," she said.

The reviews were similarly mixed, though mostly positive, at the Giant Eagle
Express outside Pittsburgh.

Peter and Kim Maguire stopped by the store for some last-minute items en
route to a camping trip. They ended up buying chips, strawberries,
blueberries and hummus.

"We pop in here for little things we forget," said Ms. Maguire, 39. Her
husband, 38, added that the store has "great lunches," including sushi and
burritos.

RoseAnn Zanoli, 68, said the express store was "good when you need them."
While she found some eggs, she said she came up empty when looking for a
card for her 50th wedding anniversary. "They don't carry everything that you
need," she said."


Will Carless contributed reporting from Laguna Hills, Calif.

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